Managing business performance – It’s not a numbers game!

“Making the numbers” is important in business. Whether we’re talking about commercial performance, quality of service provision, compliance with legal and regulatory requirements, or whatever, numbers matter.

At the same time, knowing the numbers gives us little clue as to how best to manage business performance on a continuing basis.When we’re talking about the complex social dynamics of organization, numbers don’t cut it. To paraphrase Peter Drucker, only the notation is numerical, the decisions are entrepreneurial1. That is to say, managing business performance is about committing resources today, to deal with a continuously emerging and ultimately unknowable future.

Yet we still appear to be locked-in to a view of business performance management that is rooted in the ‘if you do this, you’ll get that’ logic that properly underpins the management of technical performance.

Ever since Management By Objectives was first used in the 1950s, it has become the accepted wisdom to seek to control and direct business performance by establishing intricate networks of objectives and targets at successive 'levels' of organization. The "Balanced Scorecard", introduced by Kaplan and Norton in the mid-1990s, is probably the most widely-used of the many approaches that managers have taken up in their continuing quest to discover this 'Holy Grail' of business performance management.

The current drive seems to be one of “digitizing” the target-setting and performance-reporting systems. This further reinforces the belief that the answer lies in the numbers, rather than in the actions and interactions of living and breathing human beings.Together, these mainstream prescriptions present a seductive view of what it takes to manage business performance. Seductive but misleading.

So what is wrong with this approach? And is there anything that we might usefully do instead?

Continuing disappointments

This overall methodology is underpinned by the belief that “what gets measured gets done”. And, given the widespread adoption of measurement-based systems to support strategic management and operational practice, it would seem that this view is well-entrenched within management circles. Nevertheless, experience ‘on the ground’ suggests that applying this principle in practice remains problematic.

Typical concerns include:

the seemingly impossible task of establishing meaningful links between 'lower-level' objectives and overall business performance outcomes;

the abstract nature and presumed universality of the “performance indicators” that tend to be prescribed as being "key";the reliance on arms-length management, based on upwardly-focused regimes of measurement and reporting;

the setting of specific personal and group targets, ahead of time, to “drive” performance – often somewhat ironically referred to as "SMART", in a world of constantly shifting demands and priorities;

the catalogue of high-profile stories about the (inevitable!) ‘gaming’ of performance targets and the so-called “unintended consequences” that such targets tend to spawn;

the rigidity of many of the systems in practice, which limits flexibility and responsiveness to deal with changing circumstances or to reflect the widely diverse needs of people and situations;

the tendency to look at the roles of individuals and teams in terms of inputs (activities to be carried out) rather than outputs (contributions to be made);

the highly structured and formulaic nature of many performance-assessment and review procedures, rather than these encouraging and enabling open dialogue between those involved;

the bureaucracy associated with the centralized administration and application of many of the systems;

and, not least,

the low relationship that these approaches often seem to have to what people actually find themselves doing in practice.

Yet still the ritual and rhetoric continue.

Flawed assumptions

What might seem to be a common-sense desire to establish clarity and precision, is rooted in many flawed assumptions about the dynamics of organizational practice and business performance. It is another example of the "hoodwinking logic"2 that helps to sustain what Ralph Stacey refers to as the dominant management discourse.3

For example, this upward-serving, measurement-centric approach:

accepts the tenets of conventional management ‘wisdom’, as regards the presumed ability of managers to predict outcomes and deliver results in line with pre-determined policies, plans, and program(me)s;

offers one of any number of prescribed sets of factors for managers to measure and control, depending on the model adopted - each of which are purported to be research-based and universally applicable (but nevertheless different from each other!);

assumes a linear relationship between these supposedly "key factors" of business performance and overall outcomes (as, for example, in Kaplan and Norton’s assertion that organizational learning improves those internal processes which deliver value to customers, and that this in turn leads to enhanced financial performance);

sees measurement as the primary means of delivering the sought-after results, as underlined by the widespread use of “scorecards”, “dashboards”, comparative “indexes”, “personal targets”, impersonal “engagement surveys”, and so on;

advocates the increasing digitization of these various systems - further substituting abstract, data-based diagnostics for the richer understanding that emerges in local interaction and ongoing dialogue – doing the wrong thing more slickly doesn’t make it the right thing to do;

and, most importantly,

ignores the hidden, messy, and informal dynamics (“wiggliness”) of real-world organization that people experience every day – and which ultimately determine what happens in practice.

None of this means that numbers don’t matter. Clearly, they do. The ultimate measures of business performance are likely to be stated and assessed in numerical terms of one form or another, whether in the public, private, or voluntary sectors.

The mistake, though, is in believing that knowing these numbers helps us decide how we can set about achieving or improving current practice. And, at the same time, how we might change the business to deal with the different future that is emerging from our own and everyone else's participation in it.

An alternative perspective

So, what does it mean to "manage business performance" in the no-easy-answers world in which we are all participating? What principles should inform managers' practice?

To begin with, we need to rid ourselves of the view that we can somehow design-out the complex, uncertain and paradoxical nature of real-world organizational practice. We are all immersed in a continuously moving ‘game’ of human interaction, in which the causes of particular 'outcomes' - in this case relating to business performance - are never fully knowable. Even after the event.

This is a game that no-one has designed. And which no-one controls - whatever their formal position. So, recognizing this is a good place to start.

PRINCIPLE #1 - Everything that happens in the context of business performance is co-created in the complex social process of everyday human interaction.

The management task then becomes one of participating imaginatively in this process. Looking for ways that enable people to excel at what they find themselves doing together. Ways that are judged by those involved to be practical, contextually relevant, personally meaningful and organizationally beneficial.

PRINCIPLE #2 - What is meaningful gets done.

This requires a decisive shift away from an approach rooted in the tools, techniques and protocols of upward-reporting performance measurement. In this regard, the use of terms such as "scorecard" and “dashboard”, whilst widespread and memorable, arguably directs attention too much towards measurement and not enough towards the practical reality that current and future performance emerge ‘in the now’ of people’s everyday interactions.

Most importantly, managers need to pay attention to what they and others actually find themselves doing in the midst of their ongoing practice. Otherwise their efforts will degenerate into little more than a performance cult - kept alive by the 'life support machine' of impersonal techniques, targets and reports.

PRINCIPLE #3 - Scorekeepers and commentators should not be seen as more important than the players!

Performance outcomes cannot be mandated by managers or imposed through measurement and control systems. What is required instead is an approach that facilitates people’s self-management of their individual and collective performance.

Before consultants got hold of his idea and turned it into an overly structured and essentially top-down procedure ("MBO"), Drucker talked about the need for "management by objectives [Note: Small ‘m’. Small ‘b’. Small ‘o’!] and self-control [my emphasis]."4 Essentially, he was saying that people need to understand what they have to achieve, both individually and collectively, if they are to contribute their time and talents to the full, in pursuit of improved business performance. They then need to be enabled to manage their own performance to get there, in concert with others who are similarly engaged in dealing with their own sets of challenges.

PRINCIPLE #4 - Encouraging, assisting and enabling the effective self-management of individual and collective performance is a fundamental aspect of managing overall business performance.

In essence, this means managers helping everyone - including themselves - to develop an embodied notion of the ‘Whys, Whats, and Hows' of their practice, in the various contexts in which they find themselves participating. Doing so enables them to enhance their practical judgement over time, and to become better at dealing with whatever emerges from the widespread interplay of their own and others' ongoing, conversational interactions.

PRINCIPLE #5 - People need to become so immersed in conversations about the Whys, Whats and Hows of their practice that they can anticipate and respond effectively to whatever happens in reality– not to what was supposed to happen according to the planning assumptions.

So what benefits, if any, can measurement bring?

This depends, primarily, on how the process is used. And, in particular, for whose benefit the measures are provided. Measurement can be useful where it increases people's capacity to collaboratively self-manage their contribution to the business. That is, where the information gleaned enables them - directly - to make sounder judgements as to what performance-enhancing moves they might usefully make in the midst of their ongoing practice. Unfortunately, it is most often deployed judgementally, in the mistaken belief that this provides a means of achieving top-down control of activities and outcomes.

PRINCIPLE #6 - Effective measurement is about facilitating movement, not passing judgement. Its main contribution is in enabling people to achieve beneficial shifts in their own practice and performance; not providing a means for others to sit in judgement on that performance.

Everything that happens in a particular organizational context is an emergent outcome of the actions, interactions and inactions of everyone involved. This includes those people who are currently employed; others - sometimes long gone - whose past interactions have left 'imprints' on present practice in the form of still-current policies and procedures, enduring 'customs and practices', and so on; and other "stakeholders", beyond the formally recognized organizational boundaries, whose decisions and actions have a significant effect on what can and can't be achieved.

PRINCIPLE #7 - Business outcomes emerge from the ongoing process of everyday, conversational interaction. Paying attention to, reflecting on, and seeking to reinforce or shift the content and patterning of these conversations is central to the performance-management task.

It's through these moment-to-moment interactions that people make sense of the world and take action. As a related dynamic of organization, they tend to coalesce informally around those conversational themes that resonate with their own interpretations, interests, ideologies, identities, and so on. Or with those of 'significant others' in their lives, such as their team mates, wider social connections, family members and opinion formers. These organizing themes might include, for example, the latest rumours, dominant points of view, explanatory narratives, new ideas and formal policy propositions. People coalesce with others around such themes in order to initiate, support or frustrate particular ways of working and business outcomes.

Those who are formally in charge, in any particular context, cannot stand aside from this process. They are not objective observers and controllers of other people 's actions. They, too, participate in these everyday politics of organizational life. But they face the additional challenge of orchestrating people's collective efforts around the delivery of the formally adopted business agenda.

PRINCIPLE #8 - Mobilizing the collective action of people around those organizing themes that are judged to be business enhancing and practically 'doable' is key to the managing business performance.

Unlocking people's individual and collective talents in this way, integrating the efforts across the business and mobilizing people's collective action for business benefit, is arguably the core leadership contribution that managers can make to the performance of the business. They should not be misled into thinking that the same effect can be achieved by applying a few coats of "Performance Management" gloss to traditional management practices.

PRINCIPLE #9 - You cannot collapse the full breadth of performance management into a system of performance measurement.

NOTES:

1. Drucker was actually talking about budgeting, when he said, “Only the notation is financial, the decisions are entrepreneurial” in Management: Tasks, Responsibilities, Practices (1973).

2. This is an evocative term that I recall reading at school(!) in Louis MacNeice's poem, Christmas Shopping: "Something-and-eleven the yard, hoodwinking logic". It seemed to fit the bill here!